Thu, May 04, 2006 - Page 11 News List

Chinatrust issues Q2 profit warning

By Amber Chung  /  STAFF REPORTER

Chinatrust Financial Holding Co (中信金控), the nation's largest credit card issuer, warned that second-quarter earnings could further weaken because of rising provision expenses.

"We will still have a hard time in the second quarter ? with worsening bad loan reserves and earnings compared with those in the first quarter," Chinatrust Financial's chief financial officer Perry Chang (張明田) said.

Growth in other areas like wealth management or fee income would barely offset losses from unsecured credit and cash card lending, Chang said.

The company does not expect profitability to recover until the third quarter of this year, he added.

In the first quarter of the year, Chinatrust Financial posted earnings of NT$824 million (US$26.05 million), or NT$0.06 per share, down 82.5 percent from the same period last year and 60 percent from the fourth quarter, amid rising consumer loan defaults that surfaced around the middle of last year.

Bad loan provisions soared 86.4 percent quarter-on-quarter to NT$11.13 billion during the first quarter.

The bad debts have spread to some extent and affected other types of lending, such as car and housing loans. Consequently, Chinatrust Financial expects its profits this year to be much worse than last year when it posted NT$20 billion in pre-tax income, Chang said.

"We expect [bad debt] charge-offs will peak in the third quarter, potentially wiping out this year's earnings, and [foresee] a gradual normalization in the second quarter of next year," said Vincent Chang (張進森), an analyst who tracks Taiwan's financial sector at ABN AMRO Asia Ltd Taipei Branch, in a report released yesterday.

ABN AMRO upgraded Chinatrust Financial to "buy" from "hold" and raised its target price from NT$22 to NT$31. Shares of Chinatrust Financial slid 1.3 percent to close at NT$26.35 on the stock exchange yesterday.

Chinatrust Financial is also hoping to expand its market share and had announced in February plans to acquire up to 10 percent of Mega Financial Holding Co (兆豐金控), the nation's second-largest financial group by assets.

The company will compete for board seats in Mega Financial's shareholders' meeting on June 23, Perry Chang said yesterday.

Chinatrust Financial and its subsidiaries currently hold a 15.7 percent stake in Mega Financial, he said. The company is reportedly expected to get three of Mega Financial's 15 board seats.

Chinatrust Financial is expected to record a capital gain of up to NT$1.8 billion, as Mega Financial said last month it would issue a cash dividend of NT$1.55 per share.

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